California Life-Only & Accident and Health AgentLife InsuranceHard
A life insurance agent is completing an application with a client. The client mentions a minor heart condition they had as a child but states it has been fully resolved for over 20 years and requires no medication or ongoing treatment. The agent, believing it's insignificant, advises the client not to mention it on the application. This action by the agent MOST likely constitutes:
- AConcealment
- BMisrepresentation
- CAdverse selection
- DWaiver
Show answer & explanationAnswer & explanation
Correct answer: A. Concealment
Concealment is the intentional withholding of material facts by an applicant, which, if disclosed, would have affected the insurer's underwriting decision. Even if the agent advises it, the act of not disclosing a known material fact is concealment. While the agent's action could also be misrepresentation on their part, the applicant's omission, influenced by the agent, falls under concealment from the insurer's perspective.
Why the other options are wrong
- B. Misrepresentation is a false statement of a material fact. While the agent's advice is a misrepresentation of correct procedure, the client's action of not stating the fact is concealment.
- C. Adverse selection is the tendency of higher-risk individuals to seek insurance more than lower-risk individuals, not the act of omitting information during application.
- D. Waiver is the voluntary relinquishment of a known right, which does not apply to the applicant's omission.
Concealment (Insurance)
The intentional withholding of material facts by an applicant that are crucial to the insurer's underwriting decision.
- Involves omitting information, not making false statements.
- Must be material to the risk.
- Can void the policy if discovered, even after issuance.
Memory trick: Tell the truth, the whole truth, and nothing but the truth, or risk the policy's youth.